Modern Slavery Act – Effect on Businesses

Update July 2016: The High Court has recently found a UK company civilly liable for victims of trafficking for the first time. The case illustrates the need for businesses to take action to ensure that modern slavery is eradicated from their supply chains. In this case, a gangmaster company was ordered to pay compensation to Lithuanian workers who had been trafficked to the UK and severely exploited by the company. The trafficked men were working in supply chains producing premium free range eggs for McDonald's, Tesco, Asda, M&S and the Sainsbury's Woodland brand.

New legislation, which came into effect in October 2015, requires large businesses with an annual turnover of £36 million or more to be transparent regarding slavery and human trafficking issues, not only within their organisation but also within their supply chains.

Section 54 of the Modern Slavery Act 2015 (the Act) requires certain commercial organisations to disclose what activities they have undertaken to eliminate slavery and human trafficking from their supply chains and their own business. Affected businesses will be required to produce a “slavery and human trafficking statement” every financial year which sets out the steps they have taken during that year to ensure that slavery and human trafficking is not taking place in any part of their own business and supply chain, or that they have taken no such steps.

Which businesses will be affected?

Businesses will be affected if they:

• are a commercial organisation, business or partnership (whether or not incorporated or formed in the UK) which carries on a business or part of a business in the UK. It will therefore apply to foreign businesses and not just UK businesses;

• supply goods and services; and

• have a total annual turnover of not less than £36 million.  How total turnover is to be calculated is to be determined by the Modern Slavery Act 2015 (Transparency in Supply Chains) Regulations 2015 (which are still in draft form and therefore not yet in force). These are likely to provide that the combined turnover of a commercial organisation is the turnover of that company and its subsidiaries. "Turnover" includes amounts derived from the provision of goods and services falling within the ordinary activities of the commercial organisation or subsidiary undertaking, after deduction of trade discounts, value added tax and any other taxes based on the amounts so derived.

Taken to its extreme, this could result in a UK parent company which carries on business in the UK having to issue a statement and each of its subsidiaries (which in their own right meet the threshold) also issuing statements.

What information needs to be included in the statement?

If a business falls within the above criteria, then there is a mandatory obligation to publish an anti-slavery statement. Whilst the contents of this statement are not mandatory, a business must describe the steps it takes to ensure that slavery and human trafficking are not taking place in any of its supply chain and in any part of its own business. It would be acceptable for a business simply to state that it does not take any specific steps or that it follows the procedure of its parent company.

In addition, the Act states that the following information may be included:

• the organisation’s structure, business and its supply chain;
• its policies in relation to slavery and human trafficking (so creating an implicit pressure to introduce such policies);
• its due diligence processes in relation to slavery and human trafficking in its business and supply chain;
• the parts of its business and supply chain where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk;
• its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chain, measured against such performance indicators as it considers appropriate; and
• the training about slavery and human trafficking available to its staff.

What are the implications for businesses if they do not comply?

There will be no financial or criminal penalties for failing to comply with this new disclosure obligation. The Government will, however, have the ability to bring proceedings in the High Court for an injunction requiring an organisation to comply. It remains to be seen to what extent the Government would be prepared to take such a step.

In practice the most likely implication for businesses that do not set out the steps they have taken to eliminate slavery and human trafficking from their supply chain and their own business is the risk of negative publicity with the potential threat to brand value, company reputation and investor relations. Such statements may well also become a prerequisite for tenders for certain work from Government and other concerned bodies.

What should businesses be doing now?

Businesses should be thinking now about how they are going to satisfy this new obligation. Steps should include:

• deciding which senior individual(s) within the business will be responsible for compliance;
• thinking about what information will need to be included in the statement and pulling this together;
• auditing the business and supply chain to help determine the level of exposure, whether or not slavery and human trafficking is a potential issue for the business and where exposure is greatest;
• developing or updating supplier codes of conduct, tender requirements and supplier contracts to account for the issue including, for example, requirements on meeting minimum labour standards in their supply chain;
• putting in place policies and codes of conduct to combat slavery and human trafficking in the business and supply chain;
• identifying who will require training on the new obligations - for example, directors and employees who have direct responsibility for supply chain management and procurement;
• consulting with individuals in the workforce who may potentially be affected; and
• ensuring there are effective grievance and whistleblowing mechanisms in place so that concerns over slavery and human trafficking may be raised.

When will businesses need to start complying?

Section 54 of the Act came into force on 29 October 2015.  However the Government has confirmed that the requirement to publish a statement will take effect in respect of financial years ending on or after 31 March 2016, thus giving businesses time to prepare..